7° Sustainability Report: letter to the stakeholders

Dear Stakeholders,

We are pleased to present IGD Group’s seventh Sustainability Report, approved for the first time by the Board of Directors together with its Financial Statements. This step bears witness to the Board’s deep commitment to the ever greater integration between economic-financial and social-environmental rationale. At the same time, it means that all its Stakeholders can, in one go, have access to documentation reporting from all angles on IGD’s performance for the year just ended, an approach that represents the first step towards a possible future integration of the two documents.

The year in question, 2016, was the best financial year in IGD’s history with regard to economic-financial results. Indeed, the year closed with a Group net profit which exceeded 68 million euros, an increase of almost 50% compared to 2015, but most of all with a recurring net income (FFO) which, with an increase close to 19%, reached 53.9 million euros, bearing witness to IGD’s ability to generate cash flow over time. Furthermore, for the first time, the market value of our real estate portfolio reached almost 2.2 billion euros, due first and foremost to the acquisitions and new openings carried out.

These results are perfectly in line with the 2018 forecasts in the Business Plan, which was updated in 2016. IGD, therefore, continues to be the leading Italian company in the ownership and management of Shopping Centres and to follow a path of sustainable growth. We said we wanted to do this by making the most of our leverage in commercial, financial and asset management activities. Sustainability, integrated in business, is for us an across-the-board issue running through these areas. Two years ago we defined what the material issues were, we included them in business planning and we report on them every year.

There are four issues upon which our commitment continues to be based: innovation, social relations, environment and legality.

Innovation, for us, means to offer our Shopping Centre visitors the best environment possible so that their shopping experience is in line with their needs and expectations.

With this in mind, we continuously work on three areas: the adaptation of our structures, a tenant and merchandising mix that is continuously evolving and strong focus on innovative solutions offered in the Malls and on a multichannel approach.

Centro Città delle Stelle – Ascoli Piceno

With regard to the structures, during the year we worked hard to open Maremà Shopping Centre in Grosseto, an asset of the latest generation, innovative from an architectural point of view and at the forefront with regard to the decisions made so as to reduce its environmental impact. We also began work on the interior remodelling of Città delle Stelle Shopping Centre in Ascoli, the aim being to increase its attractiveness by introducing, first of all, an international tenant. Work will continue in this Centre in 2017 with the creation of a new internal square – connected to the existing Mall – resulting from a reduction in the hypermarket surface. We have seen that the visitors appreciate innovation. The best results in terms of tenant sales and footfalls in 2016 were recorded in the new openings or in the Shopping Centres which in the previous few years had undergone important restyling or refurbishment work. For us, this is important confirmation that we are on the right track regarding our latest Business Plan.

The adaptation of the merchandising and tenant mix, instead, continued with the structured research and selection of new brands to be introduced into the Shopping Malls. This work was carried out both on a national level (by participating in the first Mapic Italy) and on an international level (with the events promoted by the Consiglio Nazionale dei Centri Commerciali – National Association of Shopping Centres – in London and in Cannes). The strategic objective remains that of increasing the retail offer in those categories least affected by the development of online sales (especially restaurants/bars and services). We are satisfied with the results obtained: 26 new brands opened in our structures and Maremà Shopping Centre was inaugurated with an occupancy rate close to 100%.

With regard to the solutions offered, we are moving more and more towards an “O2O” (Online to Offline) approach. To this effect, in 2016 we started work on two projects: “Click & Collect” and a new strategy for managing social networks. “Click & Collect”, the first of its kind in an Italian Shopping Centre, is a pilot project in ESP Shopping Centre in Ravenna: by following a multichannel approach we have given the visitors the possibility to reserve online, on the Shopping Centre’s website, the exclusive products or services (or those on very special offer) made available by the Mall’s tenants, and which will then be collected directly in the shops of the Mall itself. The second project is the organisation of a common Facebook strategy to be shared by all the IGD Centres, in order to increase the possibility of visitor engagement. At the end of the first year, the figures tell us that we are able to communicate with a larger range of customers interested in taking part in the Shopping Centre’s activities.

Furthermore, in order to make the time spent in the Mall as enjoyable, safe and relaxing as possible, we are introducing new services for visitors, like smartphone and tablet chargers and a trolley parking service with the supervision of trolleys after shopping has been done, in addition to free Wi-Fi which has been available for several years now.

Indeed, it was precisely on the issue of the evolution of Shopping Centres and innovation that we organised an internal seminar which involved the Board of Directors and the top management of IGD’s majority shareholders.

Happy Hand in tour

The social role of the Shopping Centre was reaffirmed also on this occasion and once again confirmed by the customer and event satisfaction surveys carried out in our structures: the 74 million visitors which entered our Shopping Centres in 2016 asked for both shopping opportunities and social gathering possibilities. Our payoff, “Spaces to be lived in”, therefore, is just as pertinent as ever, and encompasses an event with a strong impact like “Happy Hand in Tour”, an event based on inclusion where able-bodied individuals and those with disabilities confront one another in sports challenges or they share an artistic experience together. This event was held in all the IGD Shopping Centres and it involved 200 associations, with a final SROI which we calculated as being positive: Every €1 invested in the project produced a result in terms of social wellbeing equal to €1.61.

Social relations for us, is also focus being placed on our employees’ wellbeing: for this reason, in 2016, we approved IGD’s first corporate Welfare Plan, which will systematise the features already in existence in the company and integrate them with the new opportunities offered by the last two years’ altered legislative framework. The aim is to also have a positive impact on the internal atmosphere and on the ability of the employees to work in the best way possible.

We are also well aware that our structures produce numerous environmental impacts. For this reason, over the last 5 years, we have implemented an energy consumption reduction process which is achieving good results. Since 2011 till now we have reduced overall electricity consumption by 13%, resulting in almost 3,200 tonnes of CO2 (equivalent to the electricity consumption of 2,200 families in one year) not being emitted into the atmosphere. This is thanks both to investments already described in our Business Plan (10 million euros by the end of 2018) and to improvements in facility management. With regard to this, the advantages that we are obtaining from UNI EN ISO14001 environmental certification are significant: in accordance with the roll out plan that we set ourselves in 2013, 90% of our Shopping Centres in our Italian portfolio will have been certified by the end of 2018.

Centro Sarca – Milano

Furthermore, 2016 was an important year because we obtained BREEAM certification for Sarca Shopping Centre, following the restyling work carried out. This certification represents one of the most important and recognised international standards for the environmental sustainability of buildings and it is characterised by the particular focus that is placed on the overall improvement in wellbeing of those that spend time there. This Centre, which is also ISO14001 certified, is the first in Italy to have obtained both certifications. Thanks also to this commitment to reduce its environmental impact, Sarca Shopping Centre has been selected by a panel of judges, made up of qualified operators in the sector from all over the world, as one of the finalists for the “MAPIC Awards” in the “Best Redeveloped Shopping Centre” category, alongside three other Centres situated in Austria, Estonia and China.

As far as renewable energy is concerned, we are working on two fronts: the photovoltaic system and energy supply sources. With regard to the former, in 2016 we signed an agreement with a leading operator in this sector to supply energy to our Shopping Centres by means of photovoltaic systems. These systems will be installed in 2017 in 3 Shopping Centres (in addition to those already up and running in the last two Centres inaugurated, Clodì in Chioggia and Maremà in Grosseto). With regard to the latter, we resolved that, starting from 2017, electricity supply to all the Shopping Centres will come from renewable energy sources, ahead of the targets set by the National Energy Strategy, by the European Union with its “Climate-Energy Package” and by the UN’s 2030 Agenda for Sustainable Development, bringing us in line with the best practices of important international groups.

We also achieved an important result regarding legality in 2016, by obtaining the Legality Rating from the Antitrust Authority with three stars, the maximum score possible. This recognition rewards IGD’s commitment to abide by the highest ethical/social and governance standards, not only by complying with the laws and regulations in its everyday operations, but also by promoting compliance with the law among its stakeholders.

To conclude, we are delighted to notice an increasing interest, both on a national and international level, towards our sustainability practices. We are pleased, first of all, because it is interesting for us to have an active role in discussions on ESG issues, both on a European level (for example by actively participating in the ICSC’s “European Sustainability Group” as the sole Italian company) and on a national one (by participating as speakers in conferences or workshops). Furthermore, it is a great satisfaction for us to see our commitment being acknowledged: in 2016 we were awarded for the second year running the “EPRA sBPR Gold Award” for our Sustainability Report (and the “EPRA BPR Silver Award” for our Consolidated Financial Statements) and we were finalists for the Oscar di Bilancio in the Small and Medium sized Enterprises category; in addition, financial analysts are increasingly taking into consideration ESG issues as elements of evaluation of the Group and investors contact us following any improvements we obtain in the CDP and GRESB questionnaires.

We are, therefore, aware that there is still a lot of work left to be done, but we are equally convinced that the process we started 7 years ago, was and is the right choice for IGD’s medium-long term sustainability.